A report from the New Orleans Advocate in Louisiana. “The New Orleans metro area has earned an unwelcome financial distinction during the coronavirus pandemic: more homeowners here are at risk of losing their homes due to unpaid mortgages than in any other major American city. More than one-in-ten borrowers in the New Orleans-Metairie metro area are now at least 30 days late with mortgage payments. ‘Our numbers for folks seeking help with evictions already are through the roof — up 300% since the pandemic started,’ said Laura Tuggle, executive director of a non-profit legal aid provider for low income Louisianans. ‘The deluge on mortgages is going to come.’”
“‘Even those who have come back to work are likely coming back to lower income jobs,’ said Joe Distefano, CEO of UrbanFootprint. ‘If you’re six, seven, eight months behind on mortgage payments it’s not like you’re suddenly going to find the money to catch up.’”
The South Florida Business Journal. “A Palm Beach Shores property that’s slated for a condominium development has been targeted in a $5.5 million foreclosure lawsuit. Located on the north side of the Palm Beach Inlet, the waterfront property currently has three apartment buildings with a combined 23 units. It was approved for a 15-unit Skyfall Ocean condo project.”
“The developer acquired the property for $6.5 million in 2019 and obtained a $5.5 million mortgage. According to the complaint, the borrower defaulted on the mortgage by failing to make the Dec. 1, 2020, payment and not paying property taxes. The complaint says $5.5 million in principal, plus interest, is due.”
The San Francisco Business Journal in California. “Swinerton and Webcor have informed San Francisco officials that they are no longer the general contracting joint venture behind Oceanwide Center, citing lack of payment for several months in city documents obtained by the Business Times. The efforts come after the project’s Chinese owner, Oceanwide Holdings, announced Dec. 31 that it was not able meet or extend a year-end deadline to close a deal with Hony Capital to buy the office, hotel and residential development near Salesforce Tower.”
“Oceanwide bought the project for $296 million in 2015 and started construction in December 2016, as part of a major U.S. real estate play that also includes a high-profile project in Los Angeles. But the project quickly ran into delays as costs soared and the Chinese government cracked down on capital ouflows.”
“If Oceanwide is unable to come to terms and close a deal to sell the project, most likely at a significant discount, real estate experts tell me they expect the U.S. Oceanwide unit — and potentially other subsidiaries of the company involved in financing the project — to seek bankruptcy protection.”
“‘It sounds like they’ve been down a couple paths and they haven’t worked, which may make bankruptcy, receivership or some insolvency-type proceeding more likely,’ said Ben Young, a partner in Jeffer Mangels Butler & Mitchell LLP’s bankruptcy group. ‘Bankruptcy allows the owner to protect themselves from a forced sale of the property by one of its creditors so that they can control the disposition and maybe get more money for it rather than selling it in a distressed kind of way.’”
From Mission Local in California. “News stories abound on San Francisco’s vacancies and plummeting rents: The vacancy rate for the approximately 3,000 property owners of the San Francisco Apartment Association is 27 percent, according to Janan New, the nonprofit organization’s director. A year ago, no one would ask Rebecca Pearson, owner of SF Life Real Estate Inc., for cheaper listings. These days, every tenant offers less than the asking price, she said.”
“For landlords, the consequences of the changing market largely depends on their total income, what fraction of their income comes from rent and whether they’re paying off a mortgage, said Noni Richen, president of Small Property Owners San Francisco. For smaller property owners in particular, expenses like electrical, sewage, garbage, maintenance, repairs, property taxes and insurance add up, said Richen and New, the director of the apartments association. ‘It’s not like we just sit on our piles of gold and run our fingers through it,’ Richen said.”
“David Levy, a real estate agent for the San Francisco-based Baldini Property Management, said the property owners most impacted include those paying off a mortgage as well as senior residents. One landlady managing eight apartment units is at risk of losing two of her buildings, said Richen, from the small property owners group.”
“The landlady has paid the mortgage on time for 20 years. But most of her renters are among the minority of tenants citywide who have stopped paying rent, and the eviction moratorium has prevented her from replacing them. She hasn’t paid the mortgage in months, and East West Bank is threatening to foreclose both buildings. She would probably be financially ruined, Richen said.”
“‘A lot of tenants assume that because someone owns property or multiple property, they’re millionaires, and they can afford to rent this place out for free,’ Levy said. ‘That’s plain not true. A lot of people who rent out their property rent it out because they need money to pay the mortgage or bills or expenses.’”
From Bisnow National. “The former CEO of a New York City investment firm has been accused of fraudulently inducing hundreds of people to invest based on the fictional success of two nonexistent real estate investment funds. Eric Malley, founder and former CEO of MG Capital Management, has been arrested and charged with securities fraud and wire fraud, the U.S. Attorney for the Southern District of New York announced.”
“‘As alleged, Malley, acting as CEO of an investment firm he founded, solicited investors with material misrepresentations and lies pertaining to luxury residential real estate and several investment funds,’ FBI New York Assistant Director in Charge William Sweeney said in a statement. ‘Ultimately, the investors, many of whom had entrusted Malley with all of their retirement savings, lost nearly everything.’”
“Malley claimed while marketing the third and fourth funds that the earlier funds had portfolio values of more than $1.1B and had outperformed the S&P 500 Index over a 10-year period, the SEC said. The purported purpose of the funds was to acquire high-end residential units in New York City leased to corporations. Malley assured investors that the funds were debt-free, but they were not, the government alleges. They held mortgaged properties almost entirely leased to individuals, not corporate tenants.”
“About 60 investors put $23M in Fund III, and approximately 275 investors backed Fund IV to the tune of about $35M. Fund III suffered net operating losses of about $860K, and its investors never received anything back, not even a return of their investments. Malley distributed at least $278K to himself in his capacity as general partner of that fund, the U.S. Attorney’s office alleges. Malley is a licensed real estate broker with no investment management experience, a fact he also lied about, the complaint alleges.”
The Globe and Mail in Canada. “According to Urbanation Inc., the total number of condo apartments available for rent in Toronto in December was 8,076, down 12 per cent from September, but up 162 per cent from December, 2019. In addition to the available inventory, the most important factor driving prices down in these core areas seems to be the falling price of rent. An asset that pays you less and less every month isn’t typically a good bet, but according to Andrew la Fleur, who specializes in investor-buyers for Re/Max Condos Plus, purchasing a new condo in Downtown Toronto has been a cash-flow-negative investment for years.”
“‘Any single unit property, in the city of Toronto, that is break-even cash flow based on a traditional 20-per-cent down [mortgage], has been nearly impossible to find in the last five to 10 years, but most especially in the last four since 2016,’ he said. For his buyers, return was calculated on eventual equity appreciation, and with prices and mortgage rates falling, the amount of cash an investor can expect to lose while waiting for that equity payday has actually shrunk.”
“The Toronto Regional Real Estate Board (TRREB) is the primary source of market data, but one thing it doesn’t provide is useful statistics for how long certain property types spend on the market. Until 2019, TRREB only provided a metric known as Days On Market (DOM) for home sales, which was misleading because it didn’t count how many total days a property had been on the market – just how many days the most recent listing had been live. For a variety of reasons, agents had fallen into the habit of taking down and relisting homes in the MLS after a certain number of days had passed.”
“Now, TRREB provides two topline figures for the whole market of Listing Days On Market (the old misleading figure) and Property Days on Market (PDOM), which captures the total number of days (with some restrictions) a home has up been for sale. But TRREB does not provide those more accurate PDOM figures for subtypes of sales (detached, semis, townhomes or condominium apartments). A spokesperson for the agency said there was currently no report that could be generated to display that data, so it’s unclear how long it’s taking to sell a condo in downtown Toronto.”
From Domain News in Australia. “Melbourne unit rents have fallen to their lowest point in four years and recorded their steepest annual fall on record in 2020, new data shows. Alex Kennedy from Hodges South Melbourne says it is definitely a tenants’ market in the inner city, particularly in areas such as the CBD, Southbank and Docklands, where landlords are still slashing rents to secure tenants.”
“‘We are definitely seeing a lot of people taking advantage of the lower rents in that inner-city market,’ he said. ‘Previously, you would see a lot more people renewing leases when they came to an end; now people are taking that opportunity to shop around and move into something similar but for much less. What we see now is owners asking up to, say, $80 to $100 less per week for a one-bedroom apartment, than what they were asking a year ago, and for two-bedrooms, they’re typically asking $150 to $200 less per week … if they don’t, those apartments are just sitting empty for continued periods of time.’”